Debates and discussions about policy reforms typically boil down to questions of their ultimate bottom line: how will taxpayers and the federal budget be impacted by the proposals? Congress’s official referee for those fiscal and budgetary impacts is the Congressional Budget Office, which was established in 1974 to analyze legislative options and prepare cost estimates of their potential impact on spending and revenues.
While the scoring methodology used in its estimates have often been a point of contention, CBO found itself in the center of a major controversy in 2017. Public policy experts and Members of Congress blasted the assumptions CBO used to project coverage and costs of proposals to repeal and replace the Affordable Care Act. After votes in the House to cut the agency’s funding last summer, CBO has made transparency a top priority over this past year. To that end, the agency has made significant progress in its outreach initiatives; however, because much of its baseline scoring methodology is statutorily controlled, congressional action is ultimately required to ensure that the agency is producing the best possible cost analysis on which to assess legislation.
CBO currently has around 245 people on staff and a budget of $50.7 million. It may be a small agency relative to other high-profile agencies, like the National Park Service (over $3 billion) or the FBI (just under $9 billion), but CBO plays a pivotal role not only in the development of policy proposals but also the passage of legislation. Generally, when a bill passes from committee, a CBO cost estimate is included in the report on the bill when it is referred for consideration in either the House or Senate. Those cost estimates can make or break the underlying bill.
CBO’s off-target estimates of health care legislation have long been the target of criticism but never more so than in 2017 when Congress was considering options to repeal and replace the Patient Protection and Affordable Care Act (ACA). CBO had projected that the ACA’s exchanges would be stable with more than twice as many enrollees than actually signed up, and it overestimated the impact that the individual mandate would have on driving middle class households into the exchanges and CBO underestimated the costs of the ACA’s Medicaid expansion. Similarly, CBO’s coverage estimates for the 2017 reform bills were also deeply flawed.
The push back against CBO’s cost estimates culminated in an legislative attempt in July of 2017 to strip its funding. Representative Scott Perry (R-PA) brought an amendment for a vote on the House floor to cut CBO’s budget by 50.4 percent, a figure picked “to match the discrepancy between the CBO’s predictions for how many people would gain health insurance under ObamaCare, and the number that actually did.” A second amendment offered by Rep. Morgan Griffith (R-VA) would have essentially outsourced CBO’s legislative scoring work. Both amendments failed, but CBO Director Keith Hall, understanding the gravity of these figurative shots across CBO’s bow, engaged in a full-fledged effort to improve the transparency of the agency’s methodology and workflow in order to improve perception of the CBO and its work products.
As the Director wrote in the recent report An Update on Transparency at CBO, the primary emphasis of improving transparency is to “enhance credibility.” One issue that was a factor in its health care projections was that, due to its workload, it had not been able to devote resources to update its coverage simulation model until this year. The model is used to estimate baseline projections of insurance coverage and premiums for individuals under 65, and to compare how various proposals would impact coverage. In a presentation to its panel of health experts in September, CBO reported that the revised model is undergoing testing.
CBO has sought to better explain its scoring methods and assumptions more clearly in its estimates and has produced a number of reports with in-depth explanations of technical information and its scoring methods for key issue areas such as federal credit programs and labor force participation rates. In testimony to Congress, Director Hall also discussed how the agency has worked with Members’ offices to walk through the steps and processes of scoring specific legislation and has made a broader effort in general of outreach to Hill offices, policy community, and the general public. In September, CBO also launched a new podcast featuring its staff discussing their work and methodologies.
The use of alternative fiscal projections has helped to bring honest, realistic budget data to light. CBO operates under statutory rules determining how it establishes its “current-law” baseline, which is the yardstick against which policy proposals are measured, that provide unrealistic projections of spending and revenues. However, in its annual budget report this year CBO provided analysis based on alternative spending assumptions of baseline spending. Previously, it used private-sector modeling to reevaluate the net risks of the National Flood Insurance Program. More recently, upon request of Rep. Jeb Hensarling, CBO re-evaluated federal credit programs using market-based fair-value accounting, identifying a $75 billion about-face in the impact on taxpayers compared to the statutory scorekeeping method.
CBO also did something new this year to help visualize its budgetary data. The agency regularly releases a report of Budget Options, which includes detailed analyses of ways in which specific programs could be modified to either reduce outlays or enhance revenues. Each option generally includes a summary of the arguments for and against the proposal. This year CBO released an interactive tool for analyzing options to reform the force structure of the military. The tool allows users to select policy options “to determine the cost and capabilities of customized plans for the military’s forces. You can add or subtract brigades, ships, aircraft squadrons, and other units. It reports the estimated effects on the Department of Defense’s operation and support costs and the size of the military.”
In a discussion with NTUF staff, Director Hall explained that the tool was the idea of one of CBO’s employees. It took a few months of work to complete the project, but with this established learning curve, going forward CBO will more easily be able to roll out similar products. A supply-side model for GDP was mentioned as a possible future release, but CBO’s options will depend on the feedback it receives, the degree of difficulty in modeling and presenting the data, and the availability of resources.
Areas for Improvement
In addition to the initiatives that have been achieved, and the suggestions NTUF recommended earlier this year, there are reforms that would further bolster not just the general perception of the CBO but also its output.
The interactive tool provides a unique way of presenting policy options. In another boost for transparency, CBO did provide the baseline outlay totals in its report the farm bill that was considered in the House earlier this year. Including this data directly in the cost estimate made it easier for non-experts to understand the budgetary impact of the legislation. CBO could also implement similar steps to improve the clarity of the scores in other cost estimates. Displaying previous-year program spending levels in the budget tables of cost estimates and illustrating baseline projection versus net spending for the proposal would help provide context to the dollar figures, making it easier for readers to understand the net impact that legislative proposals will have on spending levels.
Events from earlier this year show that CBO could set up a more consistent process for reporting corrections to estimates that represent a significant level of spending. In response to an inquiry from Senator Mike Enzi, CBO disclosed in May that it had undervalued changes in the discount rates mandated from drug manufacturers in Medicare’s Part D program by $4.4 billion – a 53 percent increase from its original score in the Bipartisan Budget Act of 2018. The estimate had been revised and updated by the time CBO published its Budget and Economic Outlook on April 9, but there was no mention, either in a footnote or otherwise, of the change made to the Part D score. In the past, CBO had published letters announcing corrections of a less substantive nature.
There could also be better communication with non-leadership and non-committee offices. A common complaint is that these Members can have difficulty obtaining information from CBO. More than anything else, this is likely a result of a resource constraint, but a fully-functional CBO should be doing more than just communicating with a small handful of members.
Of course, Congress plays a key role in CBO’s operations. This year the budget committees in the House and Senate held a series of historic hearings regarding CBO and its score-keeping activities – the first such dedicated hearings since CBO was founded. Congress could help improve budget transparency by changing budget rules to provide for a current-policy baseline and fair-value accounting.
Following the threats to its funding, CBO has made notable progress in improving openness. Of course, it could provide more transparency but there are budgetary and workload constraints. The legislative appropriations enacted for FY 2019 provide for an increase from $49.9 million to $50.7 (the amount that CBO requested) and required that “not less than $500,000 of the amount made available under this heading for (1) improving technical systems, processes, and models for the purpose of improving the transparency of estimates of budgetary effects to Members of Congress, employees of Members of Congress, and the public, and (2) to increase the availability of models, economic assumptions, and data for Members of Congress, employees of Members of Congress, and the public.”
On behalf of the taxpayers they represent, Members of Congress need to be able to rely on honest and accurate budget information as they weigh policy options. This is why it is vitally important that CBO’s ongoing efforts to improve its methods and reliability are successful.